Event-Driven

The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. Or pledging. However, such disclosures are by no means an absolute.
The key stocks mentioned in this regular insight are Sino Land (83 HK), Hysan (14 HK), Far East Consortium (35 HK), Dongyue (189 HK) & Great Eagle Holdings (41 HK)/Champion REIT (2778 HK).

NPN X PRX: Discounts Continue to Come Under Pressure

By Charlotte van Tiddens, CFA

Naspers and Prosus continue to come under pressure relative to their underlying holdings.
Since our last update on the 1st of March, Naspers’ look through discount has widened by 1.6 percentage points to 42%.
Naspers’ discount to Prosus’ market value has widened notably by 2.1 percentage points to 11.3%. Prosus’ discount is only 30bps wider and is trading at 35.4%.

JSE March Rebalance Day: Top Sells AGL, MNP & INP

By Charlotte van Tiddens, CFA

We expect to see large volumes of AGL, MNP and INP to trade in the closing auction due to the index harmonisation.
Passive trackers and hedgers with exposure to vanilla indices will need to sell down their holdings to transition to the SWIX methodology.
The top buys include: NPN, FSR, SBK, GFI, CPI and PRX.

EQD | Hang Seng (HSI): How Far Can It Rally Now?

By Nico Rosti

The Hang Seng Index is rallying and could co higher this week but it seems there isn’t much room to go really higher.
A good target to cover your LONG holdings would be 17500, for this coming week and/or the following week.
A pullback this coming week is also possible, so it’s not sure the index can rally more from here, or at least not without some correction first.

KKR/Encavis AG: Voluntary Offer

By Jesus Rodriguez Aguilar

KKR offers €17.50/share for Encavis AG (ECV GR), 53% premium, implied equity value of €2,818 million. This shows interest in renewables after the falls on the stock market in 2023-24.
The offer represents 12.7x EV/Fwd NTM EBITDA and 32.4x Fwd P/E. On a P/E basis, the offer seems fair vs. (depressed) comparables.
Given the current negative perception surrounding renewable energy companies, I think the shareholders are likely to tender at an attractive price. Spread is 3.77%/5.24% (gross/anualised, assuming closing by mid-December).

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Mar 15

Daily Brief Event-Driven: Outsourcing (2427) – The OTHER Arb – That One Neat Trick And Its Weird Risks and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Outsourcing (2427) – The OTHER Arb – That One Neat Trick And Its Weird Risks
JSR (4185) Tender May Start Next Week
JSR Corporation (4185 JP): SUNY RF Responds as JIC Tender Rumoured for a 19 Mar Start
EQD | NIFTY Down: Where to BUY WEEKLY
Another Brewing Fight for the Controlling Shareholding of Hanjin Kal?

Outsourcing (2427) – The OTHER Arb – That One Neat Trick And Its Weird Risks

Outsourcing Inc (2427 JP) has been an “interesting” risk arb situation. It was launched as a Cheeky, Opportunistic, Low-Priced MBO. Some bumps after launch turned out to be BAU.
The stock has not traded above terms since early on in the trade. I expect people are happy to get out. But there is ANOTHER ARB to do here.
The OTHER ARB is something quite particular to high float, low activism risk arb trades. In some ways better than the traditional arb, but it has some risks.

JSR (4185) Tender May Start Next Week

Just out this AM, an article in Bloomberg (J) says “people familiar with the matter” suggest the Tender Offer could be launched as early as 19 March.
The language regarding the nature of the China regulatory “approval” is different than recent media articles, but they are in the same vein.
Original and updated data, information, grids, etc are shown below.

JSR Corporation (4185 JP): SUNY RF Responds as JIC Tender Rumoured for a 19 Mar Start

Bloomberg reports that JIC will start the JSR Corp (4185 JP) tender as early as 19 March. Separately, SUNY RF filed a response to Inpria/JSR’s 6 March filing last night.
My reading of JSR and SUNY RF’s filings suggests that the Court is unlikely to conclude that SUNY RF’s lawsuit will be harmed if JIC proceeds with the tender offer.
JIC seems comfortable taking on the litigation risk (if required). The key risk remains timing. For a late April payment, gross/annualised spread is 0.6%/4.0%.

EQD | NIFTY Down: Where to BUY WEEKLY

By Nico Rosti

The NIFTY Index this week suddenly stopped its rally and started to correct.
This week should close down and the next week may be also down, but if it is the odds are great for a LONG trade.
Re-Enter the rally at prices between 21800 and 21150, this week or the next.

Another Brewing Fight for the Controlling Shareholding of Hanjin Kal?

On 14 March, NPS announced that it has decided to vote against the re-appointment of the CEO Cho Won-tae as the executive director of Korean Air Lines.
It was also announced on 14 March that GS Retail purchased a 1% stake in Hanjin Kal. In addition, Korean Air Lines also purchased a 1.2% stake in GS Retail.
One of the growing probabilities of the changing shareholding structures is that KDB may be interested in selling its 10.6% stake in Hanjin Kal.

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Mar 14

Daily Brief Event-Driven: New Information on Korea Value-Up Index Scoring System & Constituent Weighting and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

New Information on Korea Value-Up Index Scoring System & Constituent Weighting
Roland DG (6789 JP): Brother (6448 JP)’s Unexpected Competing Hostile Offer
Optus Sale Would Be A BIG Payday For SingTel
Quiddity Leaderboard STAR 50 Jun 24: 3 Changes Likely But Some Question Marks Over Certain Names
Roland DG (6789) – Brother (6448) Launches Hostile Overbid to Taiyo MBO – You Love To See It
QV Equities (QVE AU) Backs WAM Leaders’ Cash/Scrip Offer
Volpara Health (VHT AU): 12th April Shareholder Vote
Quiddity Leaderboard ChiNext & ChiNext 50 Jun 24: Multiple Changes to Expectations; US$481mn One-Way
Volpara Health (VHT AU): Scheme Vote on 12 April
An Update of the Potential KOSPI200 Rebalance Candidates in June 2024

New Information on Korea Value-Up Index Scoring System & Constituent Weighting

KRX considers a comprehensive change to the Value-up Index scoring system. Weightings emphasize ROE, PER, and FCF while reducing PBR weight.
KRX considers adopting scoring-based constituent weighting to prevent JPX Prime 150’s issues, but NPS opposes. Float market cap weighting like JPX Prime 150 is contemplated to address concerns.
Momentum trading in the Value-up initiative will favor low PER and high ROE stocks over low PBR. The semiconductor sector is anticipated to benefit significantly from float market cap-based weighting.

Roland DG (6789 JP): Brother (6448 JP)’s Unexpected Competing Hostile Offer

Brother Industries (6448 JP) has disclosed an unexpected competing hostile offer for Roland DG Corp (6789 JP) at JPY5,200 per share, a marginal 3.3% premium to the Taiyo-sponsored MBO (JPY5,035).
Unlike the Taiyo offer, the Brother offer is pre-conditioned on regulatory approvals and has a proposed start date of mid-May. The Board is evaluating the Brother offer.
The Board’s three options with declining probability are to ask Taiyo for a bump, continue to recommend an unchanged Taiyo offer or recommend the Brother offer.

Optus Sale Would Be A BIG Payday For SingTel

Reportedly (AFR), Singtel (ST SP) is in advanced talks to sell Optus, Australia’s second-largest telco, to Brookfield for A$16bn-A$18bn.
SingTel quickly countered there is no impending deal; and “Optus remains an integral and strategic part of the Singtel Group and we are committed to Australia for the long term.”
Optus’ EBITDA in 3Q24 and 9M24 fell 1.8% and 8.3% in S$ terms. Extrapolating out for FY24E suggests pricing under this (very) indicative Offer of around 7.6-8.6 turns of EBITDA.

Quiddity Leaderboard STAR 50 Jun 24: 3 Changes Likely But Some Question Marks Over Certain Names

STAR 50 Index is a tech-focused, blue-chip index in Mainland China which tracks the top 50 largest and most liquid names in the STAR market of the Shanghai Stock Exchange.
In this insight, we take a look at our expectations for potential ADDs and DELs for the STAR 50 index during the June 2024 index rebal event.
I currently expect three changes for the STAR 50 index in June 2024 but there are some questions marks over the names leading the race to become ADDs.

Roland DG (6789) – Brother (6448) Launches Hostile Overbid to Taiyo MBO – You Love To See It

A month ago, Engagement Investor Taiyo Pacific Partners launched an MBO on Roland DG Corp (6789 JP) after having done a takeover of their former sub years ago.
I said it was too cheap. Machinery company Brother Industries (6448 JP) has decided the same, and has announced a hostile/unsolicited overbid 3.3% higher. Tender to start in May. Fun!!!
This will almost certainly get bid even higher as people would expect the MBO bidders won’t simply give up. More below.

QV Equities (QVE AU) Backs WAM Leaders’ Cash/Scrip Offer

Back on the 31 Jan, WAM Leaders Ltd (WLE AU), said it intended to make an off-market Offer after QV Equities Ltd (QVE AU) rejected its all-scrip NBIO.
WAM and QVE have now entered into a Scheme. The current scrip terms are 0.7609 new WAM shares per QVE share; OR A$1.02/share cash. Terms will be adjusted …
… in accordance with the most recently released NTA/shares of WAM and QVE. QVE shareholders are also expected to receive the quarterly dividend of A$0.013/share.

Volpara Health (VHT AU): 12th April Shareholder Vote

On the 14 December, Volpara Health (VHT AU), which makes software enabling the early detection of breast cancer, announced an Offer by way of a Scheme with Lunit (328130 KS)
NZ’s OIO approval was satisfied on the 31 January. The Scheme Booklet is now out, with a Scheme Meeting to be held on the 12th April.
Lunit is offering Volpara shareholders A$1.15/share, in cash, a 47.4% premium to last close. Cornerstone investors with 25.92% of shares out are supportive. The IE says terms are fair.

Quiddity Leaderboard ChiNext & ChiNext 50 Jun 24: Multiple Changes to Expectations; US$481mn One-Way

The ChiNext Index represents the performance of the 100 largest and most liquid A-share stocks listed on the ChiNext Market of the Shenzhen Stock Exchange.
The ChiNext 50 index is a subset of the ChiNext Index and it consists of the top 50 names in the ChiNext index with the highest daily average turnover.
In this insight, we take a look at the names leading the race to become ADDs and DELs in the June 2024 index rebal event.

Volpara Health (VHT AU): Scheme Vote on 12 April

The Volpara Health Technologies (VHT AU) IE considers Lunit (328130 KS)‘s A$1.15 offer fair and reasonable as it is above its A$0.67-0.82 per share valuation range.
NZ OIO approval has been received. The scheme is conditional on shareholders’ approval by more than 75% of votes cast and more than 50% of shareholders.
The scheme vote will get up as the offer is attractive vs. historical trading ranges. At the last close and for the 21 May payment, the gross/annualised spread was 2.2%/13.0%.

An Update of the Potential KOSPI200 Rebalance Candidates in June 2024

We provide an update of the potential KOSPI200 rebalance candidates in June 2024.
The bottom 5% market caps in KOSPI200 could be excluded from the KOSPI200 rebalance in June 2024. These 10 stocks are down on average 12.6% YTD.
We identified seven potential inclusion candidates. Among them, those that have low PBR multiples including HHI and Dongwon Industries could continue to outperform the market leading up to rebalance announcement.

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Mar 13

Daily Brief Event-Driven: Keisei Electric (9009) Share Buyback – Interesting Dynamics & Opportunity and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Keisei Electric (9009) Share Buyback – Interesting Dynamics & Opportunity
Li Ning (2331 HK): Value Trap Play?
Li Ning (2331 HK): Evaluating a Potential Privatisation
KCC Corp: Taking a Closer Step to Separating the Ownership Structures of the KCC Group
KRX’s Official SSF/SSO Reshuffle Results: Trading Considerations
Alumina (AWC AU): Alcoa’s Binding Proposal Aided by Alcoa’s Re-Rating
Quiddity Leaderboard SSE50/180 Jun 24: Some New Trade Ideas
QV Equities (QVE AU): WAM Leaders (WLE AU)’s Binding Scheme Proposal
StubWorld: Keisei’s ToSTNeT-3 Buyback. Stay Bearish
MS&AD Cross-Shareholding – At Least US$20bn of Cross-Shareholding to Sell

Keisei Electric (9009) Share Buyback – Interesting Dynamics & Opportunity

In late February, Keisei Electric Railway Co (9009 JP) announced a 5.0mm share (2.96%) ¥33bn buyback, to be executed in the following 3 months. That meant likely ToSTNeT-3.
I thought that mildly bullish. Shares rose 0.05% the next day. Then we got an OLC offering announcement. I thought that bearish. The stock popped early but fell hard.
Today the announcement. It IS a ToSTNeT-3. tomorrow. At ¥6,320/share. But it is an Accelerated Share Repurchase. Which changes things. Or it doesn’t. But it bears watching closely, maybe acting.

Li Ning (2331 HK): Value Trap Play?

As the Hong Kong bourse languishes, recent Hong Kong privatisation include mainland Chinese firms such as Vinda International (3331 HK) and China Traditional Chinese Medicine (570 HK) .
Reportedly (Reuters) Li Ning (2331 HK) is now in the crosshairs. Shares are up 7.8% as I type.
Olympic champion Li Ning holds ~10.5% in his self-named company, which was recently in the news after acquiring a HK$2.2bn commercial building from Henderson Land (12 HK) as its headquarters.

Li Ning (2331 HK): Evaluating a Potential Privatisation

Reuters reported that due to the steep share price declines, Mr Li Ning is considering leading a consortium to privatise Li Ning (2331 HK).
The shares have been weighed down by concerns about channel inventory, steep retail discounts, and unauthorised distributor sales. To counter this, Li Ning aims to achieve RMB50bn sales by 2028.
The probability of an offer is low as funding the scheme consideration could prove challenging. Nevertheless, the downside is low as Li Ning trades at an undemanding valuation.

KCC Corp: Taking a Closer Step to Separating the Ownership Structures of the KCC Group

There is an increasing probability that KCC Corp is closer to separating the ownership structures of the three Chung brothers regarding the various KCC Group related companies.
KCC’s 9.17% stake in Samsung C&T is worth 2.8 trillion won. KCC’s stake in Samsung C&T is worth 117% of KCC’s own market cap.
According to our valuation analysis, it suggests NAV of 355,925 won per share, representing a 30% upside from current levels.

KRX’s Official SSF/SSO Reshuffle Results: Trading Considerations

The reshuffle results align with expectations, but the decision to list 11 KOSDAQ Global stocks in April is surprising. Local authorities seem to prioritize boosting the derivatives market for liquidity.
Ecopro Materials’ SSF listing, earlier than expected, attracts attention, potentially leading to an unusual basis pattern, coinciding with a major lockup release on May 17th.
We should also be wary of a pattern akin to last July’s in KOSDAQ stocks. Spot prices of recent SSFs showed a pronounced short-term uptrend, especially in KOSDAQ, versus KOSPI.

Alumina (AWC AU): Alcoa’s Binding Proposal Aided by Alcoa’s Re-Rating

Alumina Ltd (AWC AU) has entered a scheme implementation deed with Alcoa (AA US) at 0.02854 Alcoa shares per Alumina share. The scheme meeting is targeted for 3Q.
While the offer is not a knockout bid, the 15% increase in Alcoa shares lowers the headcount risk from retail opposition and lowers the bump potential.
Regulatory approvals are a formality, and Citic Resources Holdings (1205 HK) lack of support reflects HKEx listing requirements. At the last close, the gross spread was 3.4%.

Quiddity Leaderboard SSE50/180 Jun 24: Some New Trade Ideas

SSE 50 and SSE 180, respectively, aim to represent the performance of the 50 and 180 largest and most liquid A-share stocks listed on the Shanghai Stock Exchange.
In this insight, we take a look at our expectations for potential index changes for SSE 50 and SSE 180 during the June 2024 index rebal event.
I continue to expect 5 changes for SSE 50 and 18 changes for SSE 180 but some names have changed since my last insight.

QV Equities (QVE AU): WAM Leaders (WLE AU)’s Binding Scheme Proposal

QV Equities Ltd (QVE AU) has disclosed a binding scheme proposal from WAM Leaders Ltd (WLE AU) consisting of a cash and scrip consideration pegged to pre-tax NTA per share.
The indicative value of the cash proposal is A$1.02, and the scrip is A$1.058 (0.7609 WLE shares per QVE share). Shareholders are entitled to an A$0.013 March quarter dividend.
The offer is attractive, and the shareholder structure facilitates the vote. At the last close, the gross spread of the scrip + dividend offer is 8.1%.

StubWorld: Keisei’s ToSTNeT-3 Buyback. Stay Bearish

Keisei Electric Railway Co (9009 JP)‘s previously announced buyback is now confirmed to be a ToSTNeT-3 buyback. But also an accelerated share repurchase.
Preceding my comments on Keisei Electric are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

MS&AD Cross-Shareholding – At Least US$20bn of Cross-Shareholding to Sell

By Sumeet Singh

The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.
MS&AD Insurance (8725 JP) had a stake over US$100m in at least 29 listed Japanese stocks, amounting to a total of US$17.4bn.
In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

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Mar 12

Daily Brief Event-Driven: Nippon Express (9147 JP) – Buying the Overhang and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Nippon Express (9147 JP) – Buying the Overhang
CIMC Vehicles (1839 HK): Min Acceptance Condition a Risk for the Final HK$7.50 Offer
Yaizu Suisankagaku Industry (2812 JP): 3D Succeeds in Securing a Bump to JPY1,438
Japfa (JAP SP): Impressive Gain. But No Firm Offer
CIMC (1839 HK): Firm Offer. With A Bump!
On A Charge: Hanon Systems & Renewed Interest In Hahn/Hankook’s Stake
PAR Tech Taken To Task Group (TSK AU)
GlobalWafer GDRs Early Look – Last Deal Did Well, the US$870m Raising Here Will Take It to Net Cash
JSE Mar 24 Harmonisation – Is Your Benchmark Changing?
A Merger Between WeBull and SK Growth Opportunities Corp in NASDAQ

Nippon Express (9147 JP) – Buying the Overhang

The Offering priced today at ¥7,338/share vs ¥8,039/share traded at the close on the day of the announcement. That’s an 8.7% discount for no dilution.
Compared to a broad basket of Peer Baskets (yes, a basket of baskets), the stock has underperformed by 4.2%, and the 3% discount today puts it at 7+% move.
Given the relative cheapness, one should be comfortable putting this on if it gets sold off. This is not different to my initial opinion.

CIMC Vehicles (1839 HK): Min Acceptance Condition a Risk for the Final HK$7.50 Offer

CIMC Vehicle Group Co Ltd (1839 HK) announced the H Share buyback offer, excluding CIMC’s shares, is at HK$7.50, a 16.5% premium to the undisturbed price. The offer is final.
The key condition is approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection) along with a 90% minimum acceptance condition.
Excluding the irrevocables, the 90% threshold requires an independent H Shareholder acceptance rate of 77.7%, which could be challenging due to a light offer. Risk/reward unfavourable.

Yaizu Suisankagaku Industry (2812 JP): 3D Succeeds in Securing a Bump to JPY1,438

Inaba has bumped its Yaizu Suisankagaku Industry (2812 JP) offer by 6.5% to JPY1,438 and lowered the minimum number of shares to be purchased from 66.67% to 60.00% ownership ratio.
The bump was forced by 3D Investment Partners increasing its shareholding from 9.78% to 13.81% ownership ratio after the previous JPY1,350 offer was announced on 5 February.
While the offer continues to value YSK below book value, Murakami and 3D’s support paves the way for completion. At the last close, the gross spread was 7.1%.

Japfa (JAP SP): Impressive Gain. But No Firm Offer

Back in December 2022, agri-food play Japfa Ltd (JAP SP) spun-off its 62.5% stake in AustAsia Group (2425 HK), as discussed in Japfa Ltd: Trading Cheap After AustAsia In-Specie Distribution
Last Friday, Bloomberg reported its key shareholder, Renaldo Santosa and his family, who collectively control ~75.5%, are considering taking Japfa private.
The family acknowledges it has been approached by various financiers, investment banks, but nothing definitive has emerged. Still, Japfa is worth a revisit.

CIMC (1839 HK): Firm Offer. With A Bump!

Back on the 28 November 2023, SOE-backed CIMC Vehicle Group Co Ltd (1839 HK) announced a conditional H-share buyback at a $7.00/H-share, a paltry 8.6% premium to last close.
This Scheme-like Offer, with a tendering condition, secured SAFE approval late January. But last month CIMC announced a CBP investigation into the evasion of U.S. anti-dumping and countervailing duties.
Now CIMC has announced a firm Offer at HK$7.50/share. Terms are final. The majority of independent H-shareholders are supportive. This looks done. Possible completion late-May, early-June.

On A Charge: Hanon Systems & Renewed Interest In Hahn/Hankook’s Stake

Back in 2004, Hahn & Co and Hankook Tire (161390 KS) acquired a 70% stake in Hanon Systems (018880 KS) from Visteon (VC US), an automotive electronics supplier, for ₩3.8tn.
Three years ago, Hahn/Hankook explored the sale of this 70% stake, which was expected to fetch ~₩8tn (US$7bn). Reportedly, Carlyle, TPG, Bain and auto supplier Mahle submitted preliminary bids.
That 70% stake is now worth ₩2.3tn. And reportedly, Carlyle has returned to the trough.

PAR Tech Taken To Task Group (TSK AU)

PAR Technology (PAR US), a hospitality technology outfit, and TASK Group Holdings (TSK AU) have entered into a Scheme agreement.
PAR is offering A$0.81/share in cash, a 103% premium to last close; or a 50:50 cash/scrip option with an implied value of A$0.98/share, an 145% premium to undisturbed.
TASK’s board unanimously recommends the Scheme in the absence of a superior proposal. A Scheme meeting is expected be held in June.

GlobalWafer GDRs Early Look – Last Deal Did Well, the US$870m Raising Here Will Take It to Net Cash

By Clarence Chu

Globalwafers (6488 TT) is looking to raise up to US$870m in its upcoming global depository receipts (GDRs) offering.
GlobalWafer recently announced its board’s resolution to issue between 36-45m new shares in the form of GDRs, with the use of proceeds geared towards purchasing of raw materials overseas.
Similar to previous GDR listings, the deal is a long drawn out process with the firm required to jump through a number of board/shareholder/regulatory approval loops.

JSE Mar 24 Harmonisation – Is Your Benchmark Changing?

By Charlotte van Tiddens, CFA

Since the introduction of the Shareholder Weighted indices (SWIX) in July 2003, fund managers with South African equity mandates have had an array of benchmarks to choose from.
The SWIX was introduced at a time when resources made up more than 50% of the Top 40.
The SWIX methodology addressed this concentration by adjusting the float of dual-listed entities to reflect shares held by South African residents (eg. AGL, BHP).

A Merger Between WeBull and SK Growth Opportunities Corp in NASDAQ

On 28 February, WeBull announced a merger with SK Growth Opportunities SPAC on NASDAQ. The proposed transaction represented an implied pro forma enterprise value of about $7.3 billion.
WeBull had 4.3 million funded accounts and $8.2bn in assets under custody at end of 2023. In comparison, Robinhood had 23.4mn funded accounts and $102.6bn in assets under custody.
Given the numerous material concerns about this deal, we would avoid it. There are no financials including income statement and balance sheet of WeBull in the prospectus.

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Mar 11

Daily Brief Event-Driven: Dai-Nippon Printing (7912) – Whoomp There It Is! Part Deux and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Dai-Nippon Printing (7912) – Whoomp There It Is! Part Deux
MV US Listed Semiconductor 25 Index Rebalance: Over US$1bn to Sell in NVIDIA
MV Global Junior Gold Miners Index Rebalance: Over US$500m to Trade
WisdomTree Indexes Special Rebalance: ESG Considerations Dropped
MV Australia Equal Weight Index Rebalance: Float & Capping Changes to Drive Flow
Merger Arb Mondays (11 Mar) – Shinko, JSR, Azure, Genex, OreCorp, Hollysys, CPMC, Vinda
EQD | A Systematic Look at the Post Earnings Announcement Drift Across Asia
Japfa (JAP SP): Evaluating a Potential Privatisation
A/H Premium Tracker (To 8 Mar 2024): Liquid AH Premia Still Wide
HK Connect SOUTHBOUND Flows (To 8 Mar 2024); Big Net Buys of SOEs, Finally Tencent a Net Buy

Dai-Nippon Printing (7912) – Whoomp There It Is! Part Deux

At end-January 2023 it became clear activist Elliott Management had set its sights on Dai Nippon Printing (7912 JP). The stock popped and people got bullish.
I warned about the “complicated” nature of gains going forward here. Three weeks later they announced details of including ¥100bn of buybacks per year for 3yrs. That’s discussed here.
I rarely write bearishly about a huge buyback program but from next day open, over 1yr, total return has been 4.9%. Stage 2 starts 11 March with ¥50bn through end-Sep24.

MV US Listed Semiconductor 25 Index Rebalance: Over US$1bn to Sell in NVIDIA

There are no constituent changes for the VanEck Vectors Semiconductor (SMH US) ETF in March but there are a lot of float and capping changes.
Taiwan Semiconductor (TSMC) – ADR (TSM US) is the largest buy while capping results in NVIDIA Corp (NVDA US) being the largest sell by far.
Estimated one-way turnover is 8.3% resulting in a round-trip trade of nearly US$3bn. There are a few stocks with more than 0.2x ADV to trade.

MV Global Junior Gold Miners Index Rebalance: Over US$500m to Trade

Emerald Resources Nl (EMR AU) will be added to the VanEck Vectors Junior Gold Miners ETF (GDXJ US) in March while there are 3 deletions for the index.
The constituent changes along with float and capping changes result in an estimated one-way turnover of 6.4% and a one-way trade of US$263m.
There are 9 stocks with more than US$10m to trade and 9 stocks with over 2x ADV to trade.

WisdomTree Indexes Special Rebalance: ESG Considerations Dropped

WisdomTree has dropped ESG considerations while selecting stocks for the EMXSOE, CHXSOE and WTEMXC indices.
That results in a lot of inclusions and fewer deletions across indices that will be implemented at the close on 15 March.
The round-trip trade across the indices will exceed US$500m with Tencent (700 HK) as the largest buy.

MV Australia Equal Weight Index Rebalance: Float & Capping Changes to Drive Flow

There are no constituent changes for the MVIS Australia Equal Weight Index at the March rebalance.
Float and capping changes will result in a one-way turnover of 4.4% and in a round-trip trade of A$195m.
We had Lendlease Group (LLC AU), IDP Education (IEL AU) and nib holdings (NHF AU) as close deletes and they will now have inflows due to capping.

Merger Arb Mondays (11 Mar) – Shinko, JSR, Azure, Genex, OreCorp, Hollysys, CPMC, Vinda

We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads: APM Human Services Internation (APM AU), Probiotec Ltd (PBP AU), Genex Power Ltd (GNX AU), China Traditional Chinese Medicine (570 HK), Genetron Holdings Ltd (GTH US).
Lowest spreads: Tietto Minerals Ltd (TIE AU), CIMC Vehicle Group Co Ltd (1839 HK), Pact Group Holdings (PGH AU), CPMC Holdings (906 HK), Payroll (4489 JP), Welbe Inc (6556 JP).

EQD | A Systematic Look at the Post Earnings Announcement Drift Across Asia

By Nicholas Pezolano

A cross-country study on the post earning announcement drift effect.
We explore the use of various options-implied analytics to systematically view returns around earnings announcements.
Options-Implied Analytics can provide empowering information to better inform investment decisions.

Japfa (JAP SP): Evaluating a Potential Privatisation

On March 8, Bloomberg reported that Japfa Ltd (JAP SP) owners were considering taking it private and started talks about a loan of around US$150 million.
Japfa has faced ongoing profitability issues since 2022 due to cost-of-living pressures. Privatisation interest is unsurprising, as the shares have been down 72% over the last three years.
An attractive premium would be required, irrespective of the offer structure. At a S$0.26 offer (20% premium to last close), Japfa would trade in line with peer multiples.

A/H Premium Tracker (To 8 Mar 2024): Liquid AH Premia Still Wide

The New/Better A-H Premium Tracker has tables, charts, measures galore to track A/H premium positioning, southbound and northbound positioning/volatility in pairs over time, etc.
SOUTHBOUND a net buyer every day since the end of Chinese New Year. NORTHBOUND a net seller this week for the first week in 6. AH premia slightly down.
Wide spreads continue to narrow and narrow spreads continue to widen.

HK Connect SOUTHBOUND Flows (To 8 Mar 2024); Big Net Buys of SOEs, Finally Tencent a Net Buy

A shares were up small on the week. HK stock indices were down.
Net SOUTHBOUND buying was HK$17.1bn in the third post-holiday week. SOUTHBOUND has net bought every day since the end of Chinese New Year.
SOUTHBOUND continues to buy high-div SOEs. ex-div is still three months away, and given the new KPIs discussed late January by SASAC official, these still seem to be appropriate targets.

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Mar 10

Daily Brief Event-Driven: Index Rebalance & ETF Flow Recap: NKY and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Index Rebalance & ETF Flow Recap: NKY, ASX, CSI300, A50, STTF, LowVol30, Value Up
Last Week in Event SPACE: Keisei Electric, New World Development, Alumina Ltd, Azure Minerals, TDCX
(Mostly) Assia-Pac M&A: Genex, Alumina, Azure Minerals, Vinda, JSR Corp, Shinko Electric Industries

Index Rebalance & ETF Flow Recap: NKY, ASX, CSI300, A50, STTF, LowVol30, Value Up

There were a few rebalance announcements in the last week and the SSE STAR50 (STAR50 INDEX) and STAR100 Index rebalances were implemented at the close on Friday.
There are a lot of rebalances that will be implemented at the close on the coming Thursday and Friday.
Another big week of inflows for onshore China ETFs with Central Huijin likely behind the big flows to ETFs tracking the Shanghai Shenzhen CSI 300 Inde (SHSZ300 INDEX).

Last Week in Event SPACE: Keisei Electric, New World Development, Alumina Ltd, Azure Minerals, TDCX

Keisei Electric Railway Co (9009 JP) places out 1% of Oriental Land (4661 JP), but rejects lowering its stake to 15%. That is the end of the near-term catalyst.
New World Development (17 HK) popped after property cooling measures were scrapped. Then gave those gains back. And then some, and is now trading at 0.11x P/B, its lowest-ever level.
The spreads for both Alumina Ltd (AWC AU) and Azure Minerals (AZS AU) are trading wide; both potentially FIRB-related.

(Mostly) Assia-Pac M&A: Genex, Alumina, Azure Minerals, Vinda, JSR Corp, Shinko Electric Industries

I tally 51 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Just one new deal was discussed this week on Smartkarma (possible four): Electric Power Development C (9513 JP)‘s tilt for Genex Power Ltd (GNX AU).
Key updates took place on: Alumina Ltd (AWC AU), Azure Minerals (AZS AU), Vinda International (3331 HK), JSR Corp (4185 JP), and Shinko Electric Industries (6967 JP)

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Mar 09

Daily Brief Event-Driven: Local Observations on Carlyle’s Possible Buyout of Hanon Systems and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Local Observations on Carlyle’s Possible Buyout of Hanon Systems
Eureka Group (EGH AU): Aspen’s Offer Is A Non-Starter
Iberdrola/Avangrid: Logical Move

Local Observations on Carlyle’s Possible Buyout of Hanon Systems

Carlyle’s renewed interest in acquiring Hanon Systems is evident from recent local market news, indicating outreach to bankers for a potential buyout, as confirmed by a local brokerage.
Carlyle eyes majority control of Hanon Systems, targeting 50.5% from Hahn & Co and 19.5% from Hankook Tire. Carlyle may extend a tender offer for the remaining 30%.
Still early stages; no solid info on deal certainty or specifics. Limited immediate trading opportunities, but worth monitoring as it progresses.

Eureka Group (EGH AU): Aspen’s Offer Is A Non-Starter

On the 23 January, Aspen (APZ AU) improved its scrip terms to 0.26 Aspen shares per Eureka (EGH AU) share, up from 0.225 Aspen shares on the 2 March 2023.
Two weeks later, Eureka said they still had not received a formal Offer. Aspen has now released its Bidder’s Statement. Its Offer has a 50.1% acceptance condition.
Complicating the Offer was the recent disclosures from FDC Group that it held a 12.89% stake, preventing Aspen compulsory acquiring shares.

Iberdrola/Avangrid: Logical Move

By Jesus Rodriguez Aguilar

Iberdrola SA (IBE SM) launches a $34.25/share cash offer to acquire the minorities (18.4%) in its US subsidiary Avangrid (AGR US). Premium is 6.8%, and the cost c. $2.5 billion.
The market was awaiting this move since the cancellation of the PNM deal, which explains the recent rise in the share price of Avangrid.
Gross spread is 4.5%. It seems investors are buying in the hope of an offer sweetening, knowing that Iberdrola has some cash available to spend from the profitable Mexico exit.

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Mar 08

Daily Brief Event-Driven: Oriental Land (4661) Placement by Keisei Rail (9009) Says “That’s the Door” and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Oriental Land (4661) Placement by Keisei Rail (9009) Says “That’s the Door”
JSR (4185) – Reporters Reportedly Report Conditions Such That JIC Deal Could Come Soon
Shinko Electric (6967) – Break/Gap Risk Is Considerably Changed Now
JSR Corporation (4185 JP): Response to SUNY RF Lawsuit and Rumours of SAMR Approval
Karuna Therapeutics Inc (KRTX.US) – This Company Is Worth Bristol Myers Squibb Paying a High Premium
Quiddity HSTECH Jun 24 Leaderboard: Capping Flows Li Auto, Meituan, and XPeng
Azure Min (AZS AU): Trading Wide Ahead Of 8th April Vote
Quiddity HSCEI Jun 24 Flow Expectations: Many Reasons to Follow the Developments Closely
Paradise Announces A Switch in Listing from KOSDAQ to KOSPI
Telefonica/Telefonica Deutschland Holding AG: Delisting Offer

Oriental Land (4661) Placement by Keisei Rail (9009) Says “That’s the Door”

Over two decades, Keisei Electric Railway Co (9009 JP) has been the subject of softer and harder activist efforts to have Keisei monetise its stake in affiliate Oriental Land (4661).
The most recent efforts were by Palliser last fall, briefly discussed here two weeks ago when Keisei announced a buyback.
Today, Keisei announced (Japanese only) an Accelerated Block Offering of 1% of Oriental Land shares. The accompanying announcement is worth reading. It’s pretty clear.

JSR (4185) – Reporters Reportedly Report Conditions Such That JIC Deal Could Come Soon

JSR Corp (4185 JP) saw its stock pop Monday when an article in a Japanese paper said the Tender Offer would start “within the month.”
Investors went from “concerned about delay or worse” to “anticipating resolution.” Then Wednesday just before the close the stock popped as media outlets reportedly reported no SAMR approval was required.
There has been no comment from either JIC or JSR but the discount to terms has gone from 6.9% last Friday to a 1.7% discount now.

Shinko Electric (6967) – Break/Gap Risk Is Considerably Changed Now

Seven weeks ago I wrote about Shinko Electric Industries (6967 JP)‘s changing Break/Gap Risk as comps had gained. Shinko was cheap to its main comp and peers vs Announcement Date.
Since then, Shinko is +4.1% and direct peer Ibiden Co Ltd (4062 JP) is -14.5%. This has erased Shinko’s underperformance since announcement, and shrunk a 9% spread to 3.3% yesterday.
With the spread tighter and tech showing some weakness, I’d be happy unwinding at yesterday’s closing spread (3.3%).

JSR Corporation (4185 JP): Response to SUNY RF Lawsuit and Rumours of SAMR Approval

JSR Corp (4185 JP) has filed a solid response to SUNY RF’s lawsuit. SUNY RF will counter with a response by 13 March.
The response suggests that SUNY RF’s lawsuit will not be harmed if JIC proceeds with TOB, which is the strongest indication that JIC is comfortable taking on the litigation risk.
A media article stating that SAMR has allowed JIC to withdraw its merger control filing helps explain the current tight spread. However, the article needs to be treated with caution.

Karuna Therapeutics Inc (KRTX.US) – This Company Is Worth Bristol Myers Squibb Paying a High Premium

By Xinyao (Criss) Wang

Due to large patient population and strong clinical demand for new therapies, the future commercialization prospects of effective drugs in the field of schizophrenia would be relatively certain and promising.
Our forecast on the peak sales of KarXT is about US$10 billion. In other words, at this peak sales level, BMS is able to recover the US$14 billion in cost.
Karuna’s P/B is much higher than peers. If investors already have Karuna in portfolio, they may consider taking profits in time.But another rally is possible when KarXT is officially approved.

Quiddity HSTECH Jun 24 Leaderboard: Capping Flows Li Auto, Meituan, and XPeng

The HSTECH Index tracks the performance of the top 30 technology companies listed in Hong Kong that have high business exposure to certain technology themes.
In this insight, we take a look at the rankings of potential ADDs and potential DELs for the June 2024 index rebal event.
While there are no expected ADDs/DELs for HSTECH in June 2024, some index members like Li Auto (2015 HK), Meituan (3690 HK), and XPeng (9868 HK) could experience capping flows.

Azure Min (AZS AU): Trading Wide Ahead Of 8th April Vote

Back on the 19th Dec, Sociedad Quimica y Minera (SQM/B CI)/Hancock offered Azure Minerals (AZS AU) shareholders A$3.70/share by way of a Scheme, a ~52% premium to the undisturbed price.
Creasy Group (12.64%) and Delphi Group (10.15%) gave irrevocables. Mineral Resources (MIN AU)‘s 14.5% stake was unclear; but they exited on the 21 Feb. “Arbitrageurs should arb. Corporations should Corp“.
The Transaction Booklet is now out with a Scheme Meeting on the 8th April. The IE says fair. Expected implementation on the 18 April.

Quiddity HSCEI Jun 24 Flow Expectations: Many Reasons to Follow the Developments Closely

The HSCEI serves as a benchmark to reflect the overall performance of the top 50 “Mainland China” securities listed in Hong Kong.
In this insight, we take a look at the potential index changes and the resultant capping flows for HSCEI index rebal event in June 2024.
Based on the current data, I see two low-conviction ADDs and two low-conviction DELs.

Paradise Announces A Switch in Listing from KOSDAQ to KOSPI

On 7 March, Paradise Co Ltd (034230 KS) announced that it plans to switch its listing from KOSDAQ to KOSPI.
Paradise will be excluded from KOSDAQ150 when it makes the switch to KOSPI. However, it is not certain if and when the company will be included in KOSPI200.
All in all, we would argue that the valuations are not especially appealing for Paradise, despite the sharp pick-up in business in 2023.

Telefonica/Telefonica Deutschland Holding AG: Delisting Offer

By Jesus Rodriguez Aguilar

Telefonica SA (TEF SM) has decided to make a €2.35/share cash takeover offer to acquire the 5.65% stake in its German unit Telefonica Deutschland Holding (O2D GR) that it does not own.
The bidder and parent company, Telefonica, have informed Telefonica Deutschland that, except for FY 2023 dividend, they do not plan to support the distribution of dividends for future financial years.
The Bidder will apply for delisting thus the shares will soon become illiquid. Accept offer.

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Mar 07

Daily Brief Event-Driven: Sep24 Nikkei 225 Rebal – 2 ADDs and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Sep24 Nikkei 225 Rebal – 2 ADDs, 2 DELETEs Maybe, but Rebals Tougher, and Fastie+TEL Are the FUN
StubWorld: Troubling Signs For NWD (17 HK)
Interpreting Kumho Petro Chemical’s Unexpected Move to Cancel Treasury Shares
CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows
Kumho Petrochemical – A Significant Shares Cancellation Announcement
Emerging Markets Ex-China: Looking Back… And Forward
Block Deal Sale of About 400 Billion Won of Shinhan Financial by EQT Partners
Azure Minerals (AZS AU): Scheme Vote on 8 April
Wiwynn GDRs Early Look – US$1.3bn Taiwan GDR Would Be Easily Digested

Sep24 Nikkei 225 Rebal – 2 ADDs, 2 DELETEs Maybe, but Rebals Tougher, and Fastie+TEL Are the FUN

Now that the March 2024 Nikkei 225 Rebalance is decided, we have a model for the Sep 2024 Review. As previously discussed on Smartkarma, actual name changes get tough now.
As of now, there should be two ADDs and two DELETEs. They might not occur. But there are two other situations which create interesting dynamics around big names.
The dynamics of Fast Retailing and Tokyo Electron promise more fun than the actual name changes in September 2024. It impacts how you trade Nikkei vs TOPIX and tech internals.

StubWorld: Troubling Signs For NWD (17 HK)

Despite the lifting of the “spicy” property cooling measures last week, New World Development (17 HK) has plumbed fresh P/B lows after a (very) brief respite.
Preceding my comments on NWD are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Interpreting Kumho Petro Chemical’s Unexpected Move to Cancel Treasury Shares

Kumho Petro Chemical (011780 KS) intends to retire 50% of its common shares, totaling 2,624,417 shares, starting from the 2024 fiscal year until the 2026 fiscal year.
With the annual general meeting nearing, NPS hasn’t revealed its support, causing unease for Park Chan-gu. Considering NPS’s obligation to the Value-Up policy, cancellation seems inevitable for Park Chan-gu.
Whether the battle persists hinges on NPS’s stance. If NPS backs Park Chan-gu, their stake surpassing 25% could deter the opposition’s financial strength. Conversely, NPS’s neutrality could escalate the battle.

CSI300 Index Rebalance Preview: Potential Adds Outperforming Despite ETF Inflows

With 85% of the review period complete, we see 11 changes for the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) in June.
We estimate one-way turnover of 1.2% at the rebalance leading to a one-way trade of CNY 7.3bn (US$1bn). There are a lot of stocks with multiple days ADV to trade.
The potential adds have outperformed the potential deletes despite large flows from the National Team into ETFs tracking the CSI 300 Index. That support for the potential deletes will reverse.

Kumho Petrochemical – A Significant Shares Cancellation Announcement

After the market close on 6 May, Kumho Petrochem announced a significant shares cancellation program which is likely to have a positive impact on its share price.
The company announced that it will cancel 430 billion won worth of its common shares in the next three years, representing nearly 10.5% of its market cap.
Park Chul Wan, nephew of Kumho Petrochem Chairman Park Chan Koo, has been very vocal about the need for Kumho Petrochem to improve its corporate governance in past several years.

Emerging Markets Ex-China: Looking Back… And Forward

We first wrote about the iShares Emerging Markets ex-China (EMXC US) ETF 3 years ago when AUM was less than US$500m. AUM now stands at US$11bn.
IShares Emerging Markets ex-China (EMXC US) has outperformed iShares Emerging Markets (EEM US) and iShares Emerging Markets Asia (EEMA US) with lower volatility and a lower drawdown.
With the Chinese economy misfiring and markets under pressure, we could see a further shift in positioning away from China and that means inflows to other Emerging Markets.

Block Deal Sale of About 400 Billion Won of Shinhan Financial by EQT Partners

EQT Partners announced that it is selling all of its remaining shares in Shinhan Financial for about 400 billion won in a block deal sale.
The block deal sale price range is expected to be 43,776 won to 44,688 won, representing 2% to 4% discount to the closing price on 6 March (45,600 won).
We would take the deal. The block deal discount is reasonable and Shinhan Financial continues to have attractive valuations and dividend yield despite recent share price appreciation.

Azure Minerals (AZS AU): Scheme Vote on 8 April